INSTITUTIONAL DISTANCE AND LOCAL ISOMRPHISM STRATEGY

Firms face a number of disadvantages when operating abroad. To overcome these disadvantages (known collectively as the liability of foreignness), foreign firms often adopt mitigating strategies. One strategy used by foreign firms to decrease the liability of foreignness is to imitate the practices of domestic firms. Although prior studies suggest that foreign firms imitate the practices of local firms, we understand less about how firms vary in the extent to which they choose to imitate local firms. To fill that gap, this paper explores the boundary conditions under which foreign firms imitate local domestic competitors. The findings suggest that foreign firms are more likely to adopt local practices as the cultural distance, economic distance, and regulatory distance between the home country and the host country increase. However, neither the firm‟s own experience, nor the experience of foreign competitors from the same home country, systematically moderate the impact of distance on the firm‟s decision to adopt local practices